Sept. 3 (Bloomberg) -- Microsoft Corp., the world's largest software maker, cut the price of its Xbox 360 video-game consoles to compete with market leader Nintendo Co.

The Xbox 360 Arcade was reduced to $199.99 from $279.99, Microsoft said today in an e-mailed statement, making it $50 cheaper than Nintendo Co.'s top-selling Wii. Other versions of the console were cut $50 to $299.99 and $399.99.

Xbox sales in the U.S. lagged behind Nintendo's top-selling Wii and Sony Corp.'s PlayStation 3 in June and July, according to NPD Group Inc., a Port Washington, New York-based market researcher. In the battle for second place, PS3 has been helped by new games and a Blu-ray DVD player that can be used to watch movies as well.

``For the first time there is a current-generation console that is cheaper than the value-priced Wii, so that makes things interesting,'' Billy Pidgeon, a New York-based analyst with researcher IDC, said in an interview. ``Microsoft is making a move to access the mainstream consumer.''

The Wii has a suggested retail price of $249.99. Tokyo- based Sony sells the 80-gigabyte PlayStation 3 for $399.99.

The price cuts may help counter sales of the Wii, the game player with the motion-activated controller that lets users pretend they are swinging a bat or tennis racket. Last week, Kyoto-based Nintendo raised its full-year profit forecast on higher-than-anticipated sales of Wii and the DS game player.

Nintendo probably won't immediately feel pressure to cut the price of Wii, Pidgeon said. The price hasn't changed since the console was introduced in November 2006.

July Sales

``If market conditions change and the uptake of Wii slows, if that continues into the fourth quarter, they would have some incentive to lower their price,'' Pidgeon said.

In July, U.S. stores sold 555,000 Wii consoles. PlayStation 3 was second at 224,000 and Xbox 360 was third with 204,800, according to NPD.

The cut on the Xbox 360 Arcade makes the player the first to reach $199 among the newest generation of video-game consoles, Don Mattrick, a senior vice president at Microsoft, said in the statement.

Microsoft, based in Redmond, Washington, fell 20 cents to $26.90 at 4 p.m. New York time in Nasdaq Stock Market trading. It has declined 24 percent this year.

To contact the reporter on this story: Michael White in Los Angeles at mwhite8@bloomberg.net.

Last Updated: September 3, 2008 18:56 EDT